Stocks jumped to new highs for the year Monday as the dollar extended its slide, boosting prices for commodities including gold and oil. Energy and materials stocks led the market higher.
Investors bought stocks for a fourth straight day on growing confidence about the global economic recovery, getting a shot of optimism from news this weekend that the Group of 20 countries will keep stimulus measures in place. Investors saw the agreement as a signal that interest rates would remain low. Major stock indexes rose as much as 2 percent, including the Dow Jones industrial average, which jumped 185 points.
Investors around the world are seeing the dollar as weaker than other currencies because of low U.S. interest rates, and so they're using it for what's known as "carry trade," to finance purchases of investments in other countries. That trend takes the dollar down when those purchases are made.
Some analysts are questioning the markets' moves, and warn that stocks and other investments could suffer big losses if the dollar were to turn higher.
Many investors like a weaker dollar because it helps U.S. exporters by making their goods cheaper to overseas buyers and giving the companies a boost when they convert profits from abroad to dollars.
The ICE Futures U.S. dollar index, which measures the greenback against a basket of foreign currencies, fell more than 1 percent to its lowest level in 15 months. The dollar rose last year and early this year but the index has been sliding for the past eight months since major stock indicators bounced off 12-year lows. Investors, although they've been basing most of their buy or sell decisions on the economy, have also been following a pattern of funneling money into stocks when the dollar weakens and pulling it out when the currency rises.
Commodities prices, meanwhile, tend to rise when the dollar is down, so gold topped $1,100 an ounce. Crude oil rose $2 to settle at $79.43 per barrel on the New York Mercantile Exchange, helped in part by Tropical Storm Ida, which threatened the Gulf of Mexico.
Energy and materials stocks rose along with commodities prices, and investors' enthusiasm for those stocks spilled over to other industries.
Brian Battle, vice president of trading at Performance Trust Capital Partners in Chicago, said the strength of the carry trade is giving an artificial lift to a range of assets, including stocks.
"There's cheap money that's going to be pumping its way into the system," he said. "That money is finding is home in the currency and commodity markets."
Just before the close, the Dow rose 186.14, or 1.9 percent, to 10,209.56. The index rose as high as 10,212.88, topping its previous 12-month trading high of 10,119.46 set Oct. 21.
The broader Standard & Poor's 500 index rose 21.24, or 2 percent, to 1,090.54, its sixth straight advance. The Nasdaq composite index rose 35.88, or 1.7 percent, to 2,148.32.
Five stocks rose for every one that fell on the New York Stock Exchange, where volume came to 900.9 million shares compared with 887.9 million shares traded at the same point Friday.
Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.49 percent from 3.50 percent late Friday.
The dollar's slide also came as the International Monetary Fund said the dollar remained "on the strong side." That added to selling pressure.
Jason Pride, director of research at Haverford Investments outside Philadelphia, isn't troubled by the slide in the dollar because he sees it as another sign that fear in the market is easing after the slide of the past two years. Investors rushed into the dollar as they sought the safest assets.
"As the economy gets back to normal from what were very dire circumstances earlier this year the equity markets are going to be moving up and the dollar should be falling," he said.
But some analysts see the dollar's rise as a sign of a market that is moving too far ahead of where the economic dictate it should be.
"It feels like it's on fumes," said Sean Simko, head of fixed income management at SEI Investments in Oaks, Pa., referring to the market's advance. "Although fundamentals are catching up they're not caught up."
He said the dollar's drop and the subsequent run-up in stocks and commodities making it hard for investors to get a clear picture of how fast the economy is rebounding.
"You're seeing a lot of pieces move off each other and the dollar is driving a lot of it," he said.
Retailers carved some of the biggest gains in the market's broad advance. Abercrombie & Fitch Co. rose $2.58, or 7.4 percent, to $37.59 after several analysts said international growth would boost growth at the teen apparel retailer. The company is slated to post its fiscal third-quarter numbers Friday.
Investors are scrambling for any insight into how much consumers are spending as the holidays approach. J.C. Penney Co., Macy's Inc. and Wal-Mart Stores Inc. are among the stores expected to post quarterly results this week.
Analysts are concerned that rising unemployment will further discourage consumers from spending. The government said Friday the nation's unemployment rate last month rose to 10.2 percent, the first double-digit jobless reading in 26 years.
The news was worrisome but didn't derail the market's climb. Stocks edged higher Friday as investors saw the unemployment figures as an indication interest rates would stay low. A day earlier, the Dow jumped 200 points following an upbeat forecast from Cisco Systems Inc., the maker of computer-networking gear, as well as improved data on productivity and retail sales.
The market's advance since last week is a reminder that investors have been willing to search for good news buried beneath often troubling headlines. Investors bets that the economy will improve has propelled the benchmark S&P 500 index up 58.1 percent since March.
The recovery trade continued Monday, sending energy and materials stocks higher. Exxon Mobil Corp. rose 57 cents to $72.73. Gold producer Newmont Mining Corp. rose $1.60, or 3.3 percent, to $50.64 and hit a 12-month high.
The Russell 2000 index of smaller companies rose 9.82, or 1.7 percent, to 590.17.
Overseas, Japan's Nikkei stock average rose 0.2 percent. Britain's FTSE 100 rose 1.8 percent, Germany's DAX index jumped 2.4 percent, and France's CAC-40 rose 2.1 percent.
